A recent Federal Court decision has reignited issues surrounding standard form contracts. As a result of the judgment, companies drafting those agreements and clients signing them for the services in return should proceed with caution.
Why are standard form contracts used?
Standard form contracts serve several benefits for the parties involved. This is because they create repeated and consistent creation of rights and obligations. Parties are routinely aware of their rights because they are mirrored in each agreement. They are also more efficient and avoid the need for time-consuming redrafting and legal reviews.
However, standard form contracts are also liable to pitfalls.
Standard form contracts are often very one-sided towards the drafter and are difficult to change and amend.
The recent Australian Competition and Consumer Commission v Fujifilm Business Innovation Australia Pty Ltd [2022] FCA 928 (“ACCC v Fujifilm”) case heard in the Federal Court of Australia was ultimately decided by consent. The decision found that over 175 terms across 11 different standard form contracts issued by the Fuji Xerox Group were void or unenforceable because they breached various legislation, most notably the Australian Consumer Law and its restriction on unfair contract terms.
ACCC v Fujifilm is a landmark decision for companies that have often drafted one-sided service and purchase agreements that force a client to ‘take it or leave it’ when contracting with multinational companies that have no shortage of suitors. Companies are now at risk and will be required to review their own standard contracts to ensure similar terms are not included.
Likewise, clients should be encouraged to review their current contracting methods to determine which, if any, unfair contract terms are included.
Unfair contract terms
Examples of unfair contract terms are listed in section 25 of the Australian Consumer Law. This includes, but is not limited to, a term that:
- permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;
- permits, or has the effect of permitting, one party (but not another party) to terminate the contract;
- penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;
- permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;
- permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract;
- permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning; or
- permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party’s consent.
So why is all this important to understand?
In essence, where a contract provides a unilateral right to one party, without providing an equivalent right, or a need to notify or discuss that right with the other party, then that term is liable to be considered void or unenforceable.
In circumstances where companies often rely on these terms to penalise clients, avoid their own performance, limit their own liability and assign and sell of contracts, this may drastically alter the nature of standard form contracts moving forward.
Need some assistance?
If you feel as though your standard form contracts need to be reviewed or rewritten, or you feel as though you are a victim of an unfair term in any standard form contracts, you may wish to contact one of our commercial lawyers at Foulsham & Geddes to obtain further advice about how we may be able to help you.
